Could the COVID 19- Coronavirus result in lower insurance rates? The Coronavirus has clearly made itself known to the world in which we live. In last month’s “Insurance Matters”, I noted several ways insurance could come into question while society continued to deal with the virus. This month I’d like to explain how I predict the virus will cause your future auto, homeowner, business and even workers compensation rates to stabilize or go down!
Last month I commented on how insurance companies were making it known that they would be making adjustments to the rates they were charging. Main Street America has already sent each of their personal auto insureds a check for $50 per car insured with them. American Commerce, Progressive, Allstate and others have similar plans. As the “Stay At Home” order continues, some of them are expecting to return more of the premiums to you. Other companies like Providence Mutual have sent out a notice to their insureds advising that a credit will be applied at the customer’s policy renewal but are not yet committing on what it will be. If you are insured by Providence Mutual or another company that is planning a credit on future policies, it may be frustrating to not be getting that credit now when you may need it most, but their logic has merit and in the longer term may prove beneficial to you.
Its common sense to recognize that if there are fewer cars on the road, there are fewer opportunities for people to be involved in accidents. With fewer crashes, insurance companies end up paying out less which logically means a much more profitable year for them. So are the companies returning premium dollars to you now because they don’t want to make a profit?
Insurance rates are closely scrutinized by the Rhode Island Department of Business Regulation. Every one of these rate adjustments first must be applied for and approved by the RI DBR, then processed internally with a check mailed to you. If that company is operating in other states, that same process must be followed in each state. The number crunching and legal dancing that accompanies such applications is extensive. So when I received my $100 check from Main Street America I was happy but because of my knowledge of the inner workings of the process was left wondering if it could have been more if they waited a few months. That’s the approach I think Providence Mutual has taken.
How long do you think the COVID 19 will have people driving less? Auto insurance rates are not set as a result of 3-4 months of loss experience; it is based on 3-5 years of data. Actuarial studies, which serve as the basis of your auto insurance rate, consider driver age, experience, individual loss history, regional loss trends, legislative actions, court trends, auto body labor rates, car cost and the cost of replacement parts, plus many other factors. Statistics are beginning to come out showing that auto claim counts are down close to 40%. Projected loss costs will likely be down as much as 60% by the end of the year.
In the months following the Winter of 2015, when record snow fall and low temperatures resulted in countless ice dam losses throughout New England, you didn’t begin to feel the rate impact for nearly 2 years after. Data from the February and March losses were ready to be accurately included in the actuarial calculations over 12 months later. The rate adequacy studies needed to prove that loss experience from such a weather event was or was not part of a weather trend. They had to compare the regional contractor labor costs in the same way as considering regional body shop labor rates. Then when the company felt they had enough data to justify rate adjustment request, they submitted that request to the RI Dept of Business Regulation. After they have reviewed it internally, they send it to an independent actuarial company for review. When that entity determines that they have found an error, no matter how minimal of an impact it might have, the entire request is bounced back to the insurance company to be corrected; then they start over. The rate review process commonly takes 4-6 months.
In the same way the Winter of 2015 took years to impact your rates, the impact of COVID 19 will be impacting rates for years to come. The return premium payments you receive now will be included in the future rate calculations. Those companies politically not making a big splash now will likely have lower rates a year or two down the road.
In this “Insurance Matters” I’ve focused my attention on the virus’ impact on Personal Auto insurance rates. That’s not the only insurance coverage line of business that is experiencing lower loss trends. With people staying home more, homeowner burglaries are down, freezing of water pipes are down, as are most of the loss causes for a homeowner policy. Businesses have fewer people working, on the road, or in the office. Their loss experience for commercial auto, commercial liability and workers compensation are down. Insurance companies are dealing with the reduced loss experience for these lines the same way as I’ve described for the personal auto; some sending out credits now and some waiting to apply these rate credits at renewals.
Finally something good coming from COVID 19!